Can’t get enough of CBC’s Dragons’ Den? Financial Post contributor Mary Teresa Bitti examines a deal done on last night’s show. She captures what the cameras didn’t and in the process provides a case study for readers, zeroing in on what pitchers and dragons were thinking and what the challenges for the deal are going forward.

Targeting a perenially sleep-deprived population with chocolate can be a hard sell in an already crowded market, but a bolt of caffeine and delightfully quirky packaging has given Awake Chocolate, launched in August, a sweet start.

The idea to create a caffeine-infused bar of milk chocolate came from Awake founders Matt Schnarr, Adam Deremo and Dan Tzotzis, a Toronto-based trio with a consumer packaged-goods pedigree at companies such as Kraft Foods Inc. and PepsiCo Inc.

The pitch Two weeks ago, FP Entrepreneur featured Awake chocolate as a lesson in branding and marketing. Now, we can reveal the deal it made on Dragons’ Den. Longtime friends Dan Tzotzis, Matt Schnarr and Adam Deremo, had built professional careers at Kraft Canada and Pepsico, working together on several projects. Over lunch one day in October 2010 they decided to go into business together.

“We didn’t know what the idea was, nor did we have any clue as to where we’d end up,” Mr. Tzotzis said.

In the ensuing months, the trio, who collectively have 35 years of packaged goods experience, brainstormed and soon realized that products with functional benefits have been the single biggest driver of growth in consumer packaged goods in the past decade. “Whether it’s probiotics or Greek yogurt, which is fortified with protein, or fibre and omega in granola bars … and what vitamin water and energy drinks have done within the carbonated drinks space, they’ve delivered solid growth,” Mr. Tzotzis said.

Some products with functional benefits had entered the chocolate space but all had committed a significant sin: they compromised taste. To deliver a product that satisfied on both fronts, the three men and a friend with expertise in building chocolate manufacturing facilities gathered in Mr. Tzotzis’ Stoney Creek, Ont., kitchen to cook up the right mix. The result was Awake, a chocolate bar that delivers 140 milligrams of caffeine. “Not only did we have something that tasted great but it provided the added pick-me-up caffeine typically adds,” Mr. Tzotzis said.

By early 2011, with the product formula down, they set about formulating a business plan, reaching out to investors and building a brand. “We leveraged our network and got in touch with very senior people in marketing and general management capacities,” Mr. Tzotzis said. “They provided expertise and as a result brought in astute investors to help with the marketing and commercialization.”

Awake now has the capacity to supply hundreds of millions of chocolate bars to North American retailers. Last year, armed with national and regional retailer commitments, including Shell, Shoppers Drug Mart and Gateway News, the partners decided it was time to enter the Den. “We knew we wanted a strategic partner with public relations expertise and Dave Chilton was top of our list,” Mr. Tzotzis said.

The deal The entrepreneurs asked for $200,000 in exchange for a 20% stake. A deal that included a 7.5% return of capital royalty was struck with Mr. Chilton and Kevin O’Leary. In due diligence, Mr. O’Leary opted out and within weeks the Awake founders came to terms with Mr. Chilton on a deal that lowered the royalty rate.

“I was comfortable with that because the more I got to know these guys and the other shareholders they brought in, the better the deal became,” Mr. Chilton said.

After filming, the packaging was revamped and last August the partners began selling into national retail chains. Awake chocolate bars are now available in 6,000 retail outlets across Canada.

Awake is doing sampling programs in university and college towns and will start shipping to the United States by the end of this month. Sales at the end of 2012 hit $500,000 and by the end of the first quarter of 2013, they will exceed $1-million.

A dragon’s point of view Mr. Chilton felt the upside was outstanding based on how well energy beverages have done. “When you look at drinks that have been caffeinated, they have resonated with a significant size demographic. The taste of the chocolate brought me in. I expected it to have a caffeine aftertaste and be an inferior chocolate and neither was the case.

“I also thought they were very credible, they answered all the questions well, the math was right, they had the right backgrounds. It was an unusual pitch in that I liked everything about it,” Mr. Chilton said.

From an investor’s point of view, he is pleased with Awake’s progress. “They are in good shape. There is no debt at this point. But it’s still a highly competitive business and they are up against major players that dominate shelf space and that hurts. … The big focus is Canada and the U.S. for now. Getting on shelves is incredibly difficult and these guys have done that better than anyone we’ve seen on Dragons’ Den.”

The next step, he said, is to create demand: “That’s the piece they are working on. They using old fashioned sampling and new techniques like social media to create a buzz; they are doing it all. That includes guerrilla marketing, testing, in-store promotion to see what gives them the best ROI. At any one time they are trying between five and 20 initiatives to see what grabs hold. The consumer feedback has been really good,” Mr. Chilton said.

He also likes that the entrepreneurs love to learn: “They call up, tell me what they are working on and ask me to recommend some books that will help with the initiative and they will read them within two or three days.”

An expert’s opinion John Cho, partner with KPMG Enterprise, says the founders appear to be doing all the right things and the key will be to build awareness and stay on top of inventory and cash flow. Perhaps the biggest challenge will be their success. “They have first-mover advantage, which is great, but what happens if big players wake up and decide to move into the space? They have to stay front of mind with consumers.”

To avoid problems in their friendship, Mr. Cho recommends the founders have clearly defined roles and responsibilities they’ve all agreed on. “Right now it’s high tide and things are going well. Inevitably they will be challenged.”